Legal Considerations When Purchasing Shares in an RTO

Purchasing and operating a Registered Training Organisation (RTO) can be both an exciting and challenging pathway to running a successful business. As the owner of an RTO, you will be able to deliver recognised qualifications to students and support them in the early stages of their careers. If you would like to purchase an RTO, there are various legal and regulatory considerations to keep in mind. This article explores the main considerations when purchasing an RTO through a share sale.

What is an RTO?

An RTO is a training provider registered by the Australian Skills Quality Authority (ASQA) or a state regulator to deliver vocational education and training (VET) services. An RTO can deliver nationally recognised qualifications and courses. These include qualifications from the Australian qualifications framework as well as nationally recognised short courses, such as:

certificates I, II, III and IV;

diplomas;

advanced diplomas;

vocational graduate certificates; and

vocational graduate diplomas.

RTOs can also provide training for licensed industries. An RTO registration shows that your business is qualified to train students to eventually work as a licensed professional, such as a plumber.

As an RTO, you may be able to apply for Australian government funding to deliver vocational education and training to eligible students.

What Is the Difference Between a Share Sale and an Asset Sale?

When purchasing an RTO, it is important to consider what you are purchasing. This will either be the RTO’s:

shares; or

assets.

A company is a standalone legal entity. It exists independently from any individuals, including shareholders. Ownership of the company is transferred when company shares are purchased and sold, but the company itself remains the same. When you purchase 100% of the shares in an RTO company, you acquire the entire company. This includes all of the assets the company owns (business name, equipment, bank account, brand etc.) as well as any existing liabilities.

If you are purchasing the assets of the RTO, you will gain control over the assets that the RTO owns. Assets involved in the sale may include:

student lists;

the brand and trade marks;

intellectual property in any educational material;

equipment; and

course instructors as employees.

You should think carefully about whether you are planning to purchase the business’ shares or assets. How you purchase the RTO will affect:

You should also consider the capacity in which you will purchase the shares or assets of the business. You can do so as:

an individual;

a sole trader;

a private company; or

a trust.

If you are unsure what option is best for you and your plans, you should seek structuring and tax advice.

What Should I Consider When Purchasing Shares in an RTO?

When purchasing shares in an RTO, it is important to undertake extensive due diligence. Due diligence allows you to identify whether the company has any existing or potential liabilities. You should request and review the RTO’s financial information and look for any possible issues, such as:

impending litigation;

unpaid loans; or

other liabilities.

If liabilities do exist, you may be able to negotiate either a reduction in the sale price or an indemnity. An indemnity legally obligates the seller to reimburse you if a specific liability arises.

What Documents are Involved in an RTO Share Sale?

A share sale agreement is a key legal document when purchasing the shares of an RTO. The share sale agreement should list the details of the sale and include terms outlining the:

parties involved (i.e. the seller and you, the buyer);

shares (i.e. the amount and type);

purchase price of the shares and payment terms;

details of any obligations and warranties between the seller and you, the buyer; and

completion mechanics (how the sale and transfer of shares will be finalised).

The share sale and transfer must also comply with all relevant ASIC requirements. Both you and the seller must ensure that you:

have a board meeting and shareholders resolution to approve the sale of shares;

complete a share transfer form;

cancel the vendors existing share certificate and issue a new one to you following completion; and

What are the RTO Registration and ASQA Requirements?

It is important to ensure the seller notifies ASQA of the change in ownership as soon as possible. Ideally, this will be before the sale takes place. The seller can notify ASQA of the potential change through ASQA Net, the online portal to manage registration, applications and fees for RTOs. You and the seller must then inform ASQA of the change in ownership of the RTO within 90 days of the sale taking place.

When you purchase the shares, everything the RTO business owns will be transferred to you. However, you will need to demonstrate to ASQA that you will comply with the regulatory requirements of operating an RTO to keep the current RTO registration. To do so, you may need to complete a compliance audit.

If you are purchasing the shares in the RTO to merge with an existing RTO, you must ensure that the scope of your existing registration covers all courses and qualifications that the RTO you are purchasing offers.

Key Takeaways

As the owner of an RTO, you can shape many careers by providing education and accredited qualifications. Before you commit to purchasing your new business, it is important to consider your legal obligations and responsibilities. While there are inherent risks in purchasing the shares of an RTO, there are also benefits provided you comply with the legal requirements and regulations prescribed by ASIC and ASQA. When purchasing the shares in an RTO, it is important to:

conduct thorough due diligence prior to the purchase;

ensure the relevant documents and processes are completed legally; and

comply with ASQA’s notification and compliance requirements.

If you have any questions or need assistance with purchasing shares in an RTO, get in touch with one of LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

Casey is LegalVision’s first point of contact for business sale and purchase, franchising and leasing enquiries. She first joined LegalVision in the Marketing team, where she created and edited valuable resources for our clients and their businesses. After finishing her studies, Casey moved into the Client Care team and is passionate about assisting clients through each stage of their business journey.

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